China’s economic statistics questionable

By
Derek Scissors

The first question regarding China’s newly released economic data is not how fast the country grew last year, but whether the National Bureau of Statistics of the People’s Republic of China will provide accurate information about GDP and more useful measures, such as household consumption.

The answer is: to some extent.

The Chinese economy is undergoing a cyclical recovery and the bureau can honestly report a noticeable improvement. Two large qualifiers support this statement: First, the bureau never provides much valuable information due to political imperatives and flaws in its GDP accounting. Second, the recovery is cyclical, not structural.

China’s economy was structurally weakened under Chinese President Hu Jintao’s (胡錦濤) government and it will continue weakening slowly until market reforms restart. Chinese data does not reflect this weakness or the incentives at work in Beijing. The US needs to take its own measurements of China’s economy to improve its policymaking.

The Chinese Communist Party suppresses information it dislikes; how could anyone argue that quarterly economic reporting is exempt?

Beijing almost never reports genuine unemployment numbers as they are too sensitive. It counts only a subset of unemployed in the cities and none in rural areas. The Chinese government’s official unemployment figure of between 4 percent and 4.5 percent may be off by a factor of five if rural figures were included.

Housing prices, non-performing bank loans and coal production are other examples of important figures not publicized if the outcome is sour.

Is the quality of the data provided improving? It is not clear that it is.

Some improvements have been made, but other steps look manipulative. A revision of data typically yields more of what the bureau wants to find: more consumption, more services and so on. The revisions are always incomplete, so the end result is less comparability, less consistency and less transparency.

These problems come to a head over GDP and its constituent elements, like investment and consumption.

When China publishes GDP figures, it releases indicators that look like investment and consumption: fixed asset investment and retail sales. However, these indicators are virtually useless. More accurate components of GDP are released much later.

How can GDP data be available within two weeks of the end of a quarter — compared with two months in far richer countries — yet its principal components are not available for months afterward? Revisions always result in higher GDP.

Another fault is intrinsic. GDP is an accounting tool for annual expenditure or production, but a poor way to describe economic performance over time.

Beijing embraces short-term projects, such as constructing buildings, tearing them down and rebuilding them. This adds to China’s GDP, but actually contribute nothing to the country’s wealth. China also runs the world’s biggest trade surplus, each dollar of which adds to its GDP, but does restricting competition from imported goods and services really boost Chinese prosperity?

The scope of this problem makes it hard to grasp. Growth in the narrow money supply (M1) hit a 15-year low in 2011 and fell further last year. This is compatible with a major economic shift. Yet GDP growth remained within its historical range and is now rising. The relationship between M1 and GDP has changed in a somewhat suspicious way, but where does this problem stem from? There is little foundation on which to proceed with this question.